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New position paper ''Recommendations for Tax Reform in 2019''
August 1, 2019

New position paper ''Recommendations for Tax Reform in 2019''

The American Chamber of Commerce in Croatia (AmCham) has published the ''Recommendations for Tax Reform in 2019'' with proposals that would reduce the tax burden of the majority of the working population in Croatia.

The key recommendations are: increasing the non-taxable personal deductions to HRK 4,800, decreasing the income tax rate from 24% to 12% and decreasing the 36% rate, or alternatively applying a 36% rate to gross monthly salaries that exceed HRK 75,000.

AmCham additionally proposes to increase the non-taxable amount of bonus payments for work results and other forms of additional rewards for workers from HRK 5,000 to HRK 12,000 per year. Reducing the tax burden on workers’ individual benefits, in particular workers’ health benefits such as meal benefits, sports activities benefits, tax break for supplementary health insurance, supplementary health insurance, or organizing team development activities, would allow employers to offer their employees additional benefits that they have not been able to offer so far due to high taxation. These measures would have a strong impact on improving the general well-being of employees, which would also increase their quality of work.

“Further reducing the tax burden of salaries would enable higher net earnings of Croatian employees, which would further stimulate consumer spending and economic activity. I believe that by adopting AmCham’s recommendations, the economic growth we have been seeing for some time now would gain even more momentum,” said Andrea Doko Jelušić, Executive Director of AmCham.

Despite last year’s changes, Croatia is uncompetitive in terms of its tax burden on labor, especially in the segment of higher salaries. This is one of the reasons why a large number of propulsive sectors in Croatia are experiencing problems with a lack of qualified workers, a fact especially evident in the ICT industry and tourism. 

Income tax rates in comparable countries like Bulgaria and Romania are only 10 percent. In the Czech Republic, Serbia and Slovakia, the differentiated rates are much lower than Croatia’s 36% rate.

AmCham welcomes the relief measures implemented to date, presented through three rounds of tax reform, and particularly emphasizes last year’s measures regarding taxation of employee share plans, raising the monthly gross threshold to which the 24% income tax rate applies and introducing the possibility of rewarding employees through a non-taxable amount of up to HRK 5,000. AmCham believes that further reduction of the tax burden is necessary and possible, which is supported by the continued economic growth.

A clear, predictable and stable tax system and partnerships between tax authorities and business community representatives are crucial to the functioning of the economy. Further measures to reduce the administrative burden in the sphere of the tax system would contribute to significant savings in time and resources of businesses that would have more time to focus on their primary activities.

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